Despite the Lebanon war's heavy financial burden, Israel's economy is booming much to the bewilderment of observers.

There is not an economist in the whole world who could have predicted the current economic situation. After an unsuccessful war in Lebanon and enormous military outlays, accompanied by strategic threats from Iran and Syrian saber-rattling, after missiles on Sderot and a fragile cease-fire - despite all of this, the Israeli economy in 2006 is demonstrating extraordinary strength.

After such a war, in the past we would have spiraled into ruinous inflation rates, a balance of payments crisis and looming devaluation of the shekel. Today, the shekel is the strongest currency in the world, having long since ceased to be devalued against the dollar. Just the reverse, it is gaining against it. In June 2002 the dollar cost NIS 5, and today it is at NIS 4.23, representing a valuation of 15 percent in 4.5 years.

The balance of payments, once the root of all economic crises and the reason for all emergency economic programs, went from being in chronic deficit to a surprising surplus. This year, for the first time in the country's history, combined exports of goods and services outstripped imports of same by $1.5 billion. And as if that were not enough, this is turning out to be a record year for foreign investments, too: $20 billion were invested in Israel, $8 billion in real investment. Is it any wonder that Israel's reserves keep rising? They currently stand at $28.5 billion, a respectable storehouse by any international standard.

Inflation, too, has been whipped for good. There are those who are chastising the governor of the Bank of Israel for inflation being too low. These complaints belong in the category of "The bride was too pretty." Zero-percent inflation is a good thing all around. Salaries and stipends preserve their buying power. Dollar-linked rents drop, while those linked to the Cost-of-Living Index remain stable.

This unusual stability has led to another first in the country's history: The issue, about one month ago, of a non-linked government bond! For 20 years, no less -the American dream. The bonds sold at good prices, showing that the public believes this stability will last.

It is also becoming clear that Israel's economy is growing faster than all Western economies. Even the war did not slow the pace. The mirror of growth is employment, which has improved greatly. A total of 240,000 Israelis joined the workforce in the past three years, supporting themselves instead of relying on government handouts - and that is the most important news for society. The unemployment rate has dropped to its lowest level in a decade, to 8.3 percent of the workforce compared to 10.7 percent in 2003. The number of people receiving unemployment payments fell from 97,000 in 2003 to 57,000, and the number receiving income support decreased from 155,000 to 140,000 in the same period.

Even the Tel Aviv Stock Exchange is doing the unexpected. In defiance of all the prophets of economic doom, it has jumped by 22 percent since the end of the war, to record heights. And as the stock market sees the face of the future, it apparently envisions greatness ahead.

Bank of Israel Governor Stanley Fischer recently joined the party, cutting interest rates to below the U.S. rate: 5 percent, compared to 5.25 in the U.S. And instead of an immediate devaluation, the shekel actually rose in response.

Will the economics textbooks need to be revised? Apparently not. There is a single explanation for all the good things described here: A responsible, free-market economic policy expressed through budgetary restraint, a small deficit, tax cuts, reforms, privatization and opening the economy to the free movement of goods, services and capital, or in short: Less government, more business.

This is the policy that has been implemented in Israel since 1985, by all governments, but it was greatly accelerated by then finance minister Benjamin Netanyahu in 2003. We are now reaping the fruits of his cuts, reforms and privatizations. We can now also thank the god of politics who prevented Amir Peretz from implementing his plans in 2003 - more taxes, more government, no reforms, no privatization.

Those calling themselves "pro-social welfare" are not waving the white flag, however. Even now they are trying once again to drag the economy backward. The Economic Arrangements Bill reaches the Knesset committees today, where it will face Ruhama Avraham and a few other MKs who will try to block the changes and reforms contained in the bill. Other MKs, such as Shelly Yachimovich for example, will fight to increase the government's stake in the economy. Anything smelling of privatization infuriates her, even though everyone knows that governments are not meant to manage factories and businesses.

Give it a chance, guys. Give the economy a chance to continue to grow. Stop with the populist headlines, do not block the reforms and growth. Only growth can create jobs and give the government the money - the taxes - needed to take care of society's ills. Only a wealthy state can, and must, take care of its poor.

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